Bad bosses usually think they’re awesome

When you enter the meeting, your palms are sweaty. Your nerves have really got the best of you this time— what if you give your presentation, and as soon as he hears about your vision for this project, everything goes up in flames as he rips your confidence into shreds?

You almost feel like there’s no point in bringing up the fact that his treatment isn’t fair, because as everyone knows, his word is law. You think, Who am I to communicate to the person who hired me that they’ve crossed the line.

Take comfort: yes, you do have a terrible boss. But your boss doesn’t know he’s terrible. He (or she) thinks he is absolutely awesome.

Don’t believe it? Well, it’s science.

Terrible leaders get that way by being paid too much

It’s all about self-perception. Overconfident leaders tend to think highly of their own leadership, which is why they demand large pay packages and have trouble believing that things may not be working out.

High pay, in other words, does not guarantee that a leader will turn in strong performance, as measured by a company’s stock price. In fact, it’s quite the opposite: the higher paid a leader, the more likely the company will suffer under his leadership.

“Firms that pay their CEOs in the top ten percent of excess pay earn negative abnormal returns over the next three years,” the researchers found.

Why? Because higher pay tends to make people believe they’re right. If they were always wrong, the thinking goes, they wouldn’t be paid so much, right? So the leaders tend to splash out on big, expensive plans that eventually lose money.

The findings seemed to be “driven by high-pay induced CEO overconfidence that leads to shareholder wealth losses from activities such as overinvestment and value-destroying mergers and acquisitions,” the article said.

Overconfidence hurts leaders and the companies they run

Overconfident leaders invariably think that companies will 100% improve under their leadership. How do we know that? Because as soon as they take over a company, they gather more and more stock and have trouble letting it go.

“CEOs who are overly convinced about their own leadership capabilities are not actively trying to get rich at shareholders’ expense; they’re just misperceiving the situation,” said Ulrike Malmendier, an assistant professor of finance at Stanford Graduate School of Business and a co-author on the study.

Using data on the CEOs of 477 Fortune 500 companies from 1980-1994, the researchers tracked “CEO overconfidence” by studying “the tendency of a CEO to overly invest in his or her own company by habitually buying its stock or by holding on to stock options long beyond the point when they should be exercised,” according to the Stanford Graduate School of Business.

The role of narcissism

Still, arrogance in management is rarely benign. It could put a company in danger.

A 2012 study on CEO narcissism and fraud found that “…narcissistic CEOs behave unethically to obtain their goals and satisfy their constant need for praise and admiration. Highly narcissistic CEOs may achieve greatness for their companies. However if left uncontrolled, too much narcissism may result in unethical behavior and jeopardize the interests of their companies.”

The bottom line: you may think it’s obvious that your boss is terrible, but he or she has no idea that’s the case.

Learn how to manage up. It’s rare to have a perfect boss, so everyone needs strategies for managing bosses. We like this grouping of advice, which includes everything from talking it out to learning how to rise above the drama.

Try to figure out whether the terrible behavior is temporary or a personality feature. Bosses are humans too and go through rough times. If you feel your boss isn’t being effective, try to figure out whether it’s a brief blip that will pass or something that seems more permanent. If it’s the latter, it’s worth flagging it to the boss himself.

Learn how to get information in a non-confrontational way. No one likes hearing that they’re screwing up. Instead of freaking out and demanding answers, or lobbing accusations, think more diplomatically. There may be factors you don’t know in your boss’s decisions. Questions are effective ways to present ideas while getting more information and context: “I saw the latest initiative and I have a question about it. Do you have five minutes to clarify the impact on future operations?”